Helen Reed
LONDON (Reuters) – Investors want to own Zara Inditex (BME:) is following rivals H&M (ST:) and Primark in releasing a full list of suppliers so they can better assess any risks in the supply chain.
Inditex stands out among large clothing retailers by not disclosing which factories it sources its products from. Regulators and investors want more transparency and better disclosure from companies.
Clothing retailers in particular are under pressure to prove that their supply chains are free of forced labor and that garment workers are paid fair wages.
Chinese fashion group Shein has come under scrutiny from US lawmakers over supply chain risks ahead of plans for a US listing.
In the European Union, controversy has stalled proposed rules that would require all large companies to disclose whether supply chains harm the environment or use child labor. Proposed penalties for non-compliance could include fines of 5% of income.
Fashion brands and retailers including Adidas (OTC:), H&M, Hugo Boss, M&S, Nike (NYSE:), Primark and Puma already publish detailed lists of suppliers, including names and locations of factories.
Inditex annually publishes the number of suppliers from which it buys products in 12 major countries, but does not provide information on individual plants.
Reuters asked Inditex shareholders what they wanted to see from the company in terms of improved disclosure.
In response, Dutch asset manager MN said: “In our cooperation with Inditex, we ask if they can disclose their supplier list and geographical location.”
“Even though Inditex assures us that they have this data, so far Inditex has been unwilling to disclose this information, unlike some industry peers who publish extensive lists of suppliers.”
MN, which manages the Dutch pension fund’s assets, said it was important to have this information to show whether Inditex had the information and also to carry out its own due diligence.
MN leads the Inditex dialogue for Platform Living Wage Financials (PLWF), a group of 20 institutional investors with combined assets under management of €6.58 trillion ($7.16 trillion). It is aimed at increasing the incomes of workers in the clothing and footwear industries.
Inditex, which is set to release full-year results on March 13, declined to comment on investor demands for a full list of suppliers.
“Inditex is strongly committed to maintaining high standards in its supply chain and believes that the key to this is our industry-leading traceability system, which gives us maximum supply chain visibility,” an Inditex spokesperson said.
Inditex founder Amancio Ortega owns 59% of the company, while daughter Sandra Ortega owns 5%. Together they are worth about $69 billion.
The five Inditex investors who responded to questions from Reuters have a combined stake in the company worth about $2 billion, whose current valuation is about $140 billion.
None of the investors Reuters spoke to are considering exiting Inditex.
MN said it advised its clients in December to sell off-price retailer TJX (NYSE:), which owns Homesense and TK Maxx, and sold them effective Jan. 1.
“In more than three years of cooperation, we have seen very little improvement in human rights due diligence in their global supply chain,” MN told Reuters.
TJX said it has strengthened its supplier code of conduct and expanded its factory audit program in recent years.
MORE TRANSPARENCY
Inditex has an agreement with global trade union federation IndustriALL to provide it with a full list of suppliers. But IndustriALL wants greater disclosure from all companies, including Inditex, it said.
Know The Chain, a benchmarking initiative for companies and investors to address forced labor in supply chains, gave Inditex a lower overall score in its 2023 assessment than in its 2021 assessment.
“The company is encouraged to increase transparency in its supply chain by disclosing a full, rather than partial, list of its direct suppliers,” Know The Chain said.
Publishing information about the plants could increase competition from Inditex’s rivals for the same suppliers, investors say.
Swetha Ramachandran, portfolio manager at Artemis Investment Management in London, wants to know how much of Inditex’s revenue comes from manufacturing in each sourcing country. “This will help us determine the resilience of their supply chain,” she said.
Supply chain data published by Inditex since 2019 shows that the company has reduced the number of suppliers in China and increased their number in Bangladesh and Morocco. However, the company does not provide details on the volume of products it purchases from these suppliers.
Grace Su, a portfolio manager at Clearbridge Investments, which owns Inditex shares, said she had asked for more clarity and disclosure about the supply chain.
“This is very important due to the strong focus on ESG, workforce and costs. They claim to be leaders in this, so it’s really important for them to have this level of disclosure.”
Shareholder Inditex Schroeders (LON:) is monitoring companies’ awareness of production sites and calling on clothing retailers including Inditex to be transparent, said Hannah Shuzmit, head of engagement at the firm.
Improved disclosure, among other environmental, sustainability and governance factors, could influence investment decisions, said Marie Payne, chief investment officer at shareholder Inditex.
The Norwegian sovereign wealth fund, which has a $1.4 billion stake in Inditex, said it regularly engages with the company on issues of supply chain risk management, human rights and transparency.
He declined to provide details of those discussions. Regarding companies’ supply chain practices in general, the fund said that “continuing challenges remain, including when it comes to tracking and reporting.”
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